OPINION, P8 COMPANIES, P6 EDITORIAL Moody’s upgrade will make raising capital abroad easier LEGAL BATTLE EARLY TALKS Impending taxation issues could trip up insolvency process, must be resolved MADAN SABNAVIS INTERNATIONAL, P16 Diageo sues Vijay Mallya over $40-million payout Comcast, Verizon eye Murdochs’ 21st Century Fox assets NEW DELHI, SATURDAY, NOVEMBER 18, 2017 FOLLOW US ON TWITTER & FACEBOOK. APP AVAILABLE ON APP STORE & PLAYSTORE WWW.FINANCIALEXPRESS.COM READ TO LEAD VOLUME XLIII NO. 223, 20 PAGES, `8.00 (PATNA `9.00, RAIPUR `10.00) P U B L I S H E D F R O M : A H M E D A B A D , B E N G A L U R U , C H A N D I G A R H , C H E N N A I , H Y D E R A B A D , K O C H I , K O L K ATA , L U C K N O W, M U M B A I , N E W D E L H I , P U N E SENSEX: 33,342.80 ▲ 235.98 NIFTY: 10,283.60 ▲ 68.85 NIKKEI 225: 22,396.80 ▲ 45.68 HANG SENG: 29,199.04 ▲ 180.28 `/$: 65.02 ▲ 0.31 `/€: 76.75 ▲ 0.11 BRENT: $62.13 ▲ $0.77 GOLD: `29,461.00 ▲ `35.00 RATING THUMBS-UP Moody’s upgrade means no Modi’s blues Banks, firms get access to cheaper overseas funds Moves India up a notch for first time in 14 years Bets on high growth potential on more reforms that cut risk of a spike in debt; FM says move a belated recognition S&P BSE SENSEX FE BUREAU New Delhi, November 17 33,200 IN WHAT CAME as a shot in the arm for the Narendra Modi government facing Opposition charges of stifling an alreadyslowing economy by imparting two giant successive shocks to it in the forms of demonetisation and the goods and services tax, US-based Moody’s Investors Service on Friday raised India’s sovereign rating for the first time in nearly 14 years on expectations continued progress on economic and institutional reform will boost the country’s high growth potential. With laudatory commentary on the government’s “wide-ranging” reforms programme which “is midway through”, it raised India’s rating by a notch to Baa2 from the lowest investment-grade ranking of Baa3, putting the country in line with the Philippines and Italy. The US agency also improved its India rating outlook to stable from positive as risks Intra-day, November 17 33,600 33,342.8 33,500 33,400 33,300 33,388.47 Previous close 33,106.82 Open Close `/$ Intra-day, November 17 64.50 Previous 64.75 close 64.65 65.32 64.80 65.02 64.95 65.10 Open Close to the country’s credit profile were broadly balanced. A rating upgrade for India would likely boost capital flows into the country because a large part of institutional capital allocation is ratings-driven.It could also serve to reduce the cost of government’s borrowing, apart from improving the access of domestic financial institutions and companies to the global markets for funds. Other agencies like Standard & Poor’s and Fitch are yet to up- grade India,still holding the lowest investment-grade rating for the country. While analysts said an upgrade by one more agency might be needed to make it meaningful, the precedent is that their actions have seldom come very close to each other. Moody’s positive rating action — the first by it since 2004 and by any of the Big Three rating agencies since January 2007 upgrade of India’s rating to BBBbyStandard & Poor's —will likely improve the outlook for net portfolio inflows over the next six months, reduce near-term risks for the bond market and boost banks’ ability to raise foreign bonds,Credit Suisse wrote. Moody’s also upgraded ratings of several companies and other entities, including ONGC, Indian Oil Corporation,Hindustan Petroleum and National Highways Authority of India. Therupeeandstocksralliedin response to the rating upgrade. Therupeesurgedaround0.5percentageto65.015adollarandthe Sensex rose 0.71%. India’s policymakers have been openlycritical of the rating agencies methodology, which they thought deprived India of well-deserved upgrades based on its reforms zeal, good track record on servicing debts and macroeconomic fundamentals. Continued on Page 2 Key macro indicators improve in recent years Fiscal deficit narrows… … so does CAD (Centre+states; as % of GDP) 8.24 7.8 (% of GDP) 4.8 7.68 7.12 1.7 6.56 6.00 FY12 Note: Centre's fiscal deficit target for 2017-18 is 3.2% FY17 1.1 FY15 FY16 0.7 FY14 83.23 60 22.4 23.9 21.1 23.9 23.5 20.2 68.56 2003-04 2016-17 On upcoming thrust area after rating upgrade by Moody's An emphasis on implementation and on reaping the benefits of the growth process in terms of expenditure on infrastructure building. A lot of expenditure on rural areas to improve the quality of life there. On GST and demonetisation being hailed by Moody's Much of the criticism (of demonetisation and GST) didn't originate from deep analysis. Moody's commentaryhas morevalue...GSThas broadened the market for all businesses in India and barriers and tax inspectors have been done away with. Even the rates have come down from pre-July level. Further rationalisation in GST is ongoing and an improved ecosystem will benefit businesses. Making India a less cashdependent country and bringing formalisation and digitisation to the economy will only help. (Moody's) reports are based on deeper analysis and not on political expediency. On political benefit from ratings upgrade We don't want to link it (ratings upgrade) with elections as there are 3-4 elections in a year. If we relate everything with elections then we won't be able to take stable decisions. FY13 FY14 FY15 FY16 FY17 Source: RBI; MoSPI Coupon (%) Amount issued ($ million) Greenko Dutch 4.87 350 Greenko Dutch 5.25 650 HPCL 4 500 450 REC 3.875 500 APSEZ 4 500 Marble II Pte 5.3 375 HMEL 5.25 500 Oil India Int. 4 500 JSW Steel 5.25 600 SBI/London 2.09983 300 ICICI/Dubai 3.25 Neerg Energy 6 475 Jain Int. Trading 7.125 200 Vedanta Resources 6.375 SBI/London 3.25 550 500 APSEZ 3.95 600 BPRL Int. Singapore 4.375 NTPC 2.75 €500 S&P Fitch GDP growth 2016 (%) CAD 2016 (% of GDP) A1 A+ A+ 6.7 +1.8 ■ Credit spreads on Indian issuers tighten by 5 basis points after the upgrade ■ Foreign currency bond ■ More global investors likely to show interest in Indian debt ■ Few more issuers likely look, from positive. Bond and currency expert Ananth Narayan said credit spreads for Indian bonds should tighten.“As a followthrough,real investor appetite for India and 44.28 Indonesia Baa3 BBB- BBB- 5.0 1.8 27.80 S Africa Baa3 BB+ BB+ 0.3 3.3 51.70 Baa2 BBB BBB 0.9 +2.6 133.20 INDIA Debt to GDP (%) Baa2 BBB+ BBB+ 3.2 +2.2 99.40 Baa2 BBB- BBB- 7.1 0.7 1,000 Source: Market and Bloomberg (Sovereign ratings) Moody’s Spain FY12 Major foreign currency bond issuances by Indian companies in 2017 Peers still enjoy better ratings despite worse fundamentals China 80 70 ‘Much of the criticism lacked deep analysis’ FY17 (As of end-March each year, % of GDP) (Central & state govt liabilities, % of GDP) FMSPEAK BANKS AND COMPANIES borrowing in the overseas bond markets are likelyto be able to do so at a lower cost after Moody’s upgraded India’s sovereign rating to Baa2 on Friday. The secondary markets reflected the change on Friday with the spreads for both quasi-sovereign paper — ONGC, NHAI, NTPC, a host of banks — and also some private sector players tightening by anywhere between 5 and 10 basis points. Arun Saigal, MD, head of financing, Barclays India, confirmed to FE credit spreads had tightened. “The sovereign upgrade reinforces the positive trend in India credit. We should see an improvement both from a pricing standpoint as well as increased investor appetite for longer dated issuances from the country,”Saigal said. Jayesh Mehta, MD and country treasurer, Bank of America, pointedoutthatIndianbondshad already been trading at a notch above the country rating.“Given that potentially more investors willnowbeeligibletoinvestinIndian paper, the spreads could go downfurther,”Mehtasaid,adding animmediatecontractionhadalreadybeen seen. Borrowers from India have so far mopped up $12.3 billion by way of foreign currency bonds; this compares with a total of around $11 billion in 2016. Moody’s on Friday upgraded its local and foreign currency issuer ratings for India to Baa2 from Baa3, with a stable out- Italy FY13 External debt reduces Liabilities have eased 90 1.3 6.5 BHAVIK NAIR Mumbai, November 17 68.00 BBB and Baa= lowest median investment grade; A/A1 = upper median grade; AA= high grade and AAA=prime. For India 2016-17 issuance volume at $12.35 billion in 2017 so far to tap the market before the end of the year Indian issuers risk should improve, given Moody’s now rates us two notches above junk,” Narayan said. Continued on Page 2 Moody's believes that the @narendramodi Government's reforms will improve business climate, enhance productivity, stimulate foreign and domestic investment, and ultimately foster strong and sustainable growth. @MoodysInvSvc —PMO India·Verified account @PMOIndia Over a point of time, this will reduce borrowing costs of government and financial institutions, result in increased investor confidence in the India growth and reform story We believe that the private sector capital will still take some time to come back into the economy. The Centre, PSUs, and state governments are expected to drive capital expenditure for another 9-12 months Asset markets will react positively to this action and India is now on a higher footing than peers like Indonesia. It reduces borrowing costs for the government and will lead to lower credit risk premiums for corporates It clearly shows the economy is turning the corner and poised for a big leap forward... More importantly, it also emboldens the government to stay true to the path of strong and transformational reforms in the coming days — RAJNISH KUMAR, SBI CHAIRMAN — SN SUBRAHMANYAN CEO AND MD, LARSEN & TOUBRO — CHANDA KOCHHAR MD AND CEO, ICICI BANK — SUNIL BHARTI MITTAL FOUNDER AND CHAIRMAN, BHARTI QuickPicks Toyota, Suzuki finalise pact to launch EVs in India by 2020 JAPANESE AUTOMOBILE majors Toyota Motor and Suzuki Motor on Friday concluded a memorandum of association to make electric vehicles (EVs) in the domestic market and developing the requisite technologies associated with it, reports fe Bureau in New Delhi. This will significantly boost the prospects of Maruti Suzuki, the Indian unit of Suzuki and local market leader. In February this year, Toyota and Suzuki had signed a pact to consider the prospect of working together on developing EV technology. PAGE 6 HDFC Standard Life stock soars 19% in debut trade SHARES OF HDFC Standard Life Insurance Company were listed at `310 on the National Stock Exchange (NSE) on Friday, a 7 % premium over its issue price of `290, reports fe Bureau in Mumbai. The stock closed the session at `343.90, 10.94% over its listing price of `310. During intraday trade, shares of the company climbed nearly 19% to reach `369 each, before closing at `343.90. The `8,695-crore IPO, sold in the `275-290 price band from November 7 to November 9, was subscribed 4.89 times. P11 Special Feature OUTLOOK AFTER MOODY’S ‘Need to fast-track privatisation, labour & land reforms’ FE BUREAU New Delhi, November 17 MOODY’S HAS SAID a strong and durable recovery of the investment cycle as well as longdelayed land and labour market reforms could put upward pressure on its India rating, an assessment the domestic analysts and industry leaders endorsed even as they called for a fasttracking of the sales of government stakes in public sector banks and PSUs to strengthen the fisc. “Follow-up measures needed to maintain +ve rating trend (by) further simplification of GST [goods and services tax] (structure & bureaucratic) and return to declining fiscal deficit trend (by public sector bank and PSU sale in booming market),”former chief economic adviser Arvind Virmani said in a tweet. While Moody’s has raised India to Baa2 from the lowest investment grade ranking of Baa3,Standard & Poor’s and Fitch have so far kept the country at BBB-, which corresponds to Baa3. “While ratings are backward looking indicator, the timing of the upgrade is forward looking in nature, given the implementation risks on some of the key reforms, particularly GST and bank recapitalisation. Other rating agencies are likely to follow suit but may wait until the announcement of next year’s Budget or later,” said Gaurav Kapur, chief economist at IndusInd Bank. However, most analysts feel that In- dia deserved the rating upgrade much earlier.“It was long overdue and I always feel rating agencies have not been fair on India. In the last one, one and a half years we have seen a numberof transformational reforms, not incremental reforms, and have been well executed by the government, and on these grounds they should have done the upgrade much earlier,” said Deepak Parekh,HDFC chairman. He said with Moody’s latest action, cost of capital will come down, but added that “if we see the way the oil is going there is lot of uncertainty in the Opec countries”. Given India’s robust forex reserves of $400 billion, it is betterprepared to a situationwhere oil price plunges to levels of $7075 per barrel,but oil climbing to $100-115 would be a huge negative for the country. In the near-term,India sees a modestweakening of its government debt, but expects the situation to improve soon thereafter. Economic affairs secretary Subhas Chandra Garg said: ILLUSTRATION: ROHNIT PHORE “They (rating agency) are projecting a little rise in the (debt) trajectorygoing forward,so they are conscious of the real dynamics of the debt situation. We, of course,remain committed to the fiscal path.” “The move is overall positive for bonds which were caught in a negative spiral. This is a structural positive which would lead to easing in yields across tenors,” said Lakshmi Iyer, head of fixed income at Kotak Mutual Fund said.Vivek Rajpal, a rates strategist at Nomura Holdings in Singapore, said: “This is a positive surprise to the markets, especially in terms of timing… One fear that was developing in the marketwas debtflow positioning.” Continued on Page 2 Robot surgeon The continual miniaturisation of electronics means that smarter circuits can be fitted into smaller and more versatile robotic arms than those possessed by the current ones. This expands the range of procedures surgical robots can be involved in ■ Science & Tech, P15
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